What is float in Stock? | A comprehensive guide

New to the stock market jargon? In this post, we deep dive into what is float in stock along with examples & types.

What is float in stock? 

Let us address what is float is stock? Float of stocks refers to the shares released or issued by the company for public trading. We calculate it by subtracting the outstanding shares from the restricted shares. Restricted shares are held by insiders but cannot be traded by them. In this blog, we learn more about float in stock, what do shares outstanding mean? What is a public float? What is short float?

Stock float example 

Let us stock float example – In June 2020, General Electric GE had 8.75 billion shares outstanding. Insiders hold 0.13% of the shares, and institutions held 63.61% and are not available for public trading.

Shares held by institutions = 8.75×63.61/100 = 5.57 billion shares

The floating stocks available = 8.75 -5.57 = 3.18 billion shares

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What is the volume in stocks?

What is the volume in stocks? We count volume in stocks as the total number of shares traded or shares bought and sold during the trading time or specified period. It measures the total turnover of shares. Traders can trade shares in multiple numbers, and we count the volume in each transaction.

How does stock float work?   

Floating stocks are the number of stocks available for trading. Shares can fluctuate over time due to various reasons. We express stock float in an absolute figure like 10 million shares, or as a percentage of the total outstanding shares of the company.

For example – A company ABC may have 100 million outstanding shares and 75 million shares may be available to the public. So the float is 75 million or 75% of outstanding shares.

Stocks excluded from the float are –

• Stock held by insiders
• Stocks held in the company’s books such as Treasury Stock
• Restricted stocks limit the ability of the owner to sell them for some time.

When stocks are classified as float, investors adjust their calculation based on parameters like –

• An investor who holds a certain number of shares is required a quarterly filing with the Securities and Exchange Commission, usually 5% of outstanding shares.
• A long-term investor or an insider has held shares for a long time and does not want to sell them.

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High float Vs. Low float stocks

The difference between high float vs. low float stocks

High Float Stock	Low Float Stock
A stock float is considered high if there large number of shares for trading.	A stock float is considered low if there a small percentage of shares are available for public trade.
It is easier for investors to buy or sell these stock because demand	The supplies of shares are low and acquiring the shares can be difficult.
Institutional investors like mutual funds and insurance companies prefer investing high float stock because they can buy a large number of shares without manipulating stock prices.	A float may increase when a company issues new shares to raise capital. Float can decrease if insider buys up shares or increases if they decide to sell.

 

How to calculate floating stock?

Floating stock refers to the company’s shares that are freely bought and sold public without any restriction or the number of shares available for trading.

The floating stock formula = outstanding shares – [shares owned by institutions + restricted shares (management + insider shares) + ESOPs]

Where,

• Outstanding shares are the shares the company issues and sell to outsiders.
• Restricted shares are temporarily restricted from trading because of the lock-up period after the initial public offering. They are non-transferable stocks of the company. Closely-held shares are shares held by management, insiders, and staff.

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Short float

Short float is the percentage of shares that investors are shorting relative to the total available shares or float shares. During the shorting of a share, investors borrow shares from their broker, sell at a market price, and agree to buy back the shares at a specific time. The short float of a share indicates investors are betting that the shares will fall.

What is short float?

What is short float? Short float tells you how many shares of the float short-sellers are borrowing or the shares traders have borrowed to sell short. Active traders use short float to earn profits by trading these shares. The strategy is placing bets that the share price will go down before they bo and sell them at a high price.

What is the percent of float shorted?

Percent of float shorted is the percentage of a company’s stock that has been shorted by institutional investors compared to the number of shares of a company’s stock that are available to the public. The short percentage of shares is the short-sellers who have borrowed from the float.

What is a short interest float?

A short interest float is the total number of shares of a particular share that has been sold short by investors but has not been covered or closed. Short interest is the number of shortened shares divided by the number of shares outstanding. E.g. A stock with 2.5 million shares sold short and 25 million shares has a short interest of 10%.

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What is free float stock?

What is free float stock? Free float stock or public float refers to the shares investors can trade publicly and describes the number of shares available to the public for trading in the secondary market.  It excludes promoters shares, government/strategic holding, and other locked-in shares that are not traded in the market.

How to calculate free float?

Free float is the method of calculating the market capitalization of the stock market index of underlying companies. Investors calculate market capitalization using the free float methodology by taking the equity price and multiplying it by the number of shares available in the market.

FFM = Share Price x (Number of Shares Issued – Locked-In Shares)

What is a free-float market cap?

Traders calculate standard market capitalization by determining the total number of outstanding shares, including private and public-owned ones. The Free Float market cap method is the valuation of a company that relies on outstanding shares held publicly. We exclude shares held by private parties like promoters, trusts, or the government. We calculate the free-float market cap by multiplying the shares traded publicly with the shares price.

What is the difference between total float vs. free float?

The difference between total float vs. free float is as follows –

Free float is a method of calculating marketing capitalization. Free float shares are those shares that can be traded effectively in the open market and are not secured shares of any nature.

And

Total float refers to the number of shares issued by the company for public trading. All public shares issued by the company are considered float.

Shares outstanding vs. float

The difference between shares outstanding vs. float is as follows-

Shares outstanding refer to all the shares held by the shareholders, it includes insiders, institutional investors, and the general investing public. Market capitalization is the product of a company’s outstanding shares times the share price.

And

Floating stock is the total outstanding share minus shares individuals and corporations associate with the company hold. The free-float market cap is the product of floating shares times the market price per share.

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Float vs. authorized shares

The difference between float vs. authorized shares is as follows –

Authorized shares are the maximum number of shares that a company can issue investors. The company specifies this number in the articles of incorporation. We can see the number of authorized shares in the capital account section of the balance sheet.

And

Float shares are the shares available in the open market, and it represents the number of outstanding stocks or shares available to the public for trading and does not closely-held shares or restricted stock.

Authorized shares vs. outstanding shares

The difference between authorized shares vs. outstanding shares is as follows –

We define authorized shares as the maximum shares that a company is legally allowed to issue to investors. The article of incorporation ( company’s legal formation document) specifies the maximum number of shares.

And

Outstanding shares are shares sold or issued to investors. Investment banks that implement the company’s initial public offering or IPO set up the outstanding shares.

What are shares outstanding?

What are shares outstanding? Outstanding shares are shares held by shareholders, they include shares held by institutional investors, restricted shares by the employees, and insiders. We can see the outstanding shares under capital stock in the balance sheet. We use outstanding shares to find metrics such as the company’s market capitalization, earnings per share, and cash flow per share.

Public float vs. shares outstanding

Shares outstanding and public float are different measures for the number of shares in the market. The difference between public float vs. shares outstanding is as follows –

Public float represents the number of shares issued that are available to the public for investors for trade.

And 

Shares outstanding are the total number of shares issued and actively held by stockholders – both outside investors and corporate insiders.

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Why is floating important for investors?

Investors study a company’s float number to estimate how many shares are available to be bought and sold by the public. Low float indicates fewer shares in the market, and there is a barrier to active trading. They find it difficult to enter or exit stocks that have limited float.

Institutional investors like mutual funds and insurance companies avoid trading in companies with small float because there are fewer shares to trade, leading to limited liquidity, and wider bid-ask spread. They prefer buying bulk stocks, when they buy high float stocks and make a large purchase, the price impact will be minimal.

Common Questions on Floating stock

By now, we know float share is the number of outstanding shares available for trading. The number of floating shares available indicates the volatility and liquidity of the stock. If you want to start trading in floating stocks, you must understand the fundamentals. Here are some common questions on floating stocks-

How does float affect stock price?

You must be wondering how does float affects stock price? Float shares are the number of outstanding shares a company issues minus restricted shares. It provides value to shareholders and the company. When companies issue IPO or initial public opening, companies have the opportunity to establish prices. When insiders sell shares, the free float shares increase, and prices may drop for some time.

How to find low float stocks?

Low float stocks usually have 10-20 million available shares and are held by company directors and employees. Many investors prefer low float stocks because of their volatility. How to find low float stocks? Low float stocks are available on various platforms like – TradeIdeas Stock Scanner, Thickorswim, and Benzinga.

How many shares of common stock are outstanding?

How many shares of common stock are outstanding? The number of shares outstanding for a company is the number of shares issued minus the number of shares held in the company treasury. When a company buys back shares the repurchased shares are called treasury stocks. The number of outstanding shares fluctuates over time.

What is a good volume for stocks?

A common investor question is what a good volume is for stocks? Financial experts recommend stock volume should not be more than 5 to 6% of your portfolio. You can build a diversified portfolio by buying 10 to 30 stocks.

How to check float?

Here is how to check float? Investors calculate company floating stock by subtracting restricted stock and closely held stock by the total number of outstanding stocks. Floating stocks are dynamic, and they change when new shares are issued. We can buy back shares, or insiders or major shareholders may buy or sell their shares.

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What is the average volume in stocks?

A new trader may wonder what is the average volume in stocks? Average daily trading volume (ADTV) is the average number of shares traded within a day of any given stock. Daily stock is the number of shares traded in a day but this can be averaged out over a period to find the average volume in stocks.

How does market cap affect stock price?

You may wonder how does market cap affects stock price? A company’s worth is its total market value or market capitalization. We calculate the market cap by multiplying the company’s stock price by the number of shares outstanding. The stock price is relative and is proportional to the company’s worth.

How to read stocks numbers?

Reading stock charts, or quotes is crucial if you want to understand how the stock is performing. Knowing the basics can help investors make better decisions. Here is how to read stock numbers?

Stocks have quoted pages or charts that give detailed information. The chart shows – open, high, low, previous closes, market cap, price to earnings ratio, dividend yield, and 52-wk high and low.

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How many shares of a stock should I buy?

If you are new to the stock market, you may wonder how many shares of stock should buy? The answer will depend on factors like how much money you have to invest and the commission you need to pay your broker? Are you looking to diversify your portfolio? Considering your broker does not charge a commission on every transaction, it is a three-step process-

• Find the price of the share you want to obtain?
• Divide it by the amount you have to invest in the stock market.

The result is the number of shares you can buy the answer may differ depending on services offered by your broker. You can buy fractional shares, or buy shares by rounding the number to the nearest whole number.